Finance News & Insights

Bulletproof IC decisions

Independent contractors: a great resource for completing seasonal or temporary projects and landing your company in a costly lawsuit.

Your company might only bring in a handful of independent contractors (ICs) in a year, but that doesn’t keep them from claiming they should’ve been classified as employees.

And if your A/P staff and hiring managers don’t have the right paperwork in place, you might be on the hook for benefits, worker’s comp and significant tax penalties.

So how can Finance safeguard itself from an IC/employee legal backlash?

What to ask

Before hiring any independent contractors, make sure HR or hiring managers get the following info:

  • How is your business structured (LLC, partnership, etc.)?
  • How many people do you employ?
  • Will you be providing your own equipment?
  • Do you hold any professional licenses?

Not only does this help make it clear that you’re bringing someone on as an IC and not as an employee of your company, but it also gets you the paperwork needed to justify that decision in a legal battle. One thing you’ll need to watch out for: Answers to these questions should be on a “prospective IC questionnaire,” not an employment application. Otherwise, it’ll only be fuel for the “I was an employee” fire.

What to keep on file

After you’ve got the basic info filed, have A/P or the hiring manager gather some supporting documentation. It’s closer than you think. Have them pull:

  • Ads for the IC from a local phone book or other publications, and
  • Business cards, marketing materials, etc., that the IC gives out to other companies.

Any papers that show an IC is a separate business entity and not an employee of your company will stop any misconceptions from forming.

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